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The US and NATO could be pursuing a strategy of adding fuel to the fire in Syria. The Government of Syria has been allied with Iran, and irritated the US and NATO from a nonproliferation perspective, for a long time. The US has consequently wanted to destabilize the Syrian Government. Now, that wish has been met. The Syrian Government is in a counterinsurgency against rebels that are closely allied with Al Qaeda. Other than humanitarian considerations, the US and NATO should be quietly overjoyed that two enemies are fighting. Continue reading →

By Anders Corr, Ph.D. On Sunday and Monday in Dhaka and Chittagong, Bangladesh, from 70,000 to 200,000 Islamist protesters called for adoption of Islamic law (Sharia) by the secular government. The government responded with force to related road blockages, violent riots, and primitive thrown explosives. The government use of force included some live fire, and a total of approximately 37 killed over two days. That number will likely rise, and thrice that number were likely wounded. The largest opposition party, which is allied with the Islamists, called for a 2-day general strike (WSJ, NYT, CNN, WP, AJ). Footage of the protests is below, courtesy of Associated Press.

The effects of such force will be to increase the number and militancy of islamists in Bangladesh. A minority will likely turn to more subversive violence, such as terrorist assassinations, extortion, and bombings. Such action and reaction by the government and protesters has no obvious resolution in sight. Combined with Islamist anger at continuing legal proceedings against prominent Islamist politicians and public anger at mounting factory deaths, the last two days is likely a turning point for Bangladesh’s stability — in a decidedly negative direction. At least some of this increasing unrest may soon target foreign visitors, investments, and suppliers in the country.

Figure 1. Effect of GDP Per Capita on the Social Progress Index (Model 1)

Journal of Political Risk, Vol. 1, No. 1, April 2013.

By Anders Corr, Ph.D.

Social Progress Imperative, a global group that produces well-being data for 50 countries, released their Social Progress Index (SPI) today. The index compares countries not on GDP, but rather on a single quality of life metric as a function of housing, health, education, and environmental sustainability. The index is backed by Harvard Business School professors and the Skoll Foundation (WSJ).

Sweden, Britain, and Switzerland have the best Social Progress Index scores, because these countries have some of the highest GDPs per capita of the fifty countries in the index. It is no coincidence that the three lowest SPI scores – Ethiopia, Nigeria, and Uganda, have very low GDPs per capita. The best way to understand SPI is therefore to control for GDP per capita. Corr Analytics did simple regression analysis on SPI. Approximately 84% of the index is explained by gross domestic product (GDP) per capita (see technical details below). Countries with large economies relative to their populations will have more wealth that can be channeled to the basic necessities measured by SPI. Therefore the simpler standard used by economists for decades — GDP per capita — works quite acceptably for well-being. Continue reading →

The Obama administration is currently under pressure by certain US lawmakers, as well as Britain, France, and Israel, to take limited military action in Syria. These actions could include securing a humanitarian corridor into the country, providing military equipment to the non-Al Qaeda affiliated Free Syrian Army (FSA) and Syrian Opposition Coalition (SOC), and destroying the Syrian Air Force (WSJ).

Such measures might remove a bit of pressure from rebels and provide a public opinion boost to current participating governments in the US, France, and Britain, in that voting publics in those countries would feel that their governments were doing something positive to end the Syrian crisis. However, due to the limited nature of the proposed military measures, they would not alter the balance of forces on any side of the complex conflict and could lead to notable negative consequences. Continue reading →

The Wall Street Journal reported today that a North Korean closure of the Kaesong Industrial Complex would be a signal of increased probability of hostilities with South Korea. North Korea hosts the industrial complex a few miles within its boundary, where approximately 50,000 North Koreans work for 123 South Korean companies. On an average workday, about 120 South Korean managers cross the border into the complex. South Korean companies operating in the complex pay $80 million in cash wages directly to the North Korean government, and conduct approximately $2 billion worth of North Korean trade. This is a significant amount considering North Korea’s largest trading partner, China, yields only $6 billion worth of trade. The complex is a source of inexpensive labor for South Korea, rare US dollars for North Korea, and a foundation for pan-Korean economic and political cooperation (Reuters, WSJ).

North Korean threats and provocations are primarily bluster and bluff meant to elicit talks and appeasement payouts from the west. North Korean closure of the Kaesong Industrial Complex would be no different.

More informative signals would be: 1) South Korean closure of the border crossing, or 2) North Korean capture of South Korean complex workers by abruptly closing the border. The first of the two scenarios would indicate that South Korea believes hostility is imminent. The hostility could include the second scenario, or more seriously but less likely, a North Korean attack on South Korea. The capture of South Korean complex workers would be the most serious Korean crisis since 2010, when North Korea sunk a South Korean naval vessel and shelled a South Korean island. It would likely lead to US and Chinese-mediated negotiations, a payout to North Korea, and a definitive end to North Korea’s access to trade through the Kaesong Industrial Complex. Not North Korean, but South Korean closure of the border, is the signal to watch.

Today Fitch Ratings upgraded the Philippines to investment-grade, which will substantially increase investment in the country. Expect particularly strong growth in electronics and textiles, which will buttress current export strengths in electronic assembly and garments.

Update 5/22/2013: The Philippines obtained the #3 position in foreign investment among South-East Asian countries so far in 2013 (WSJ).

On March 15, 2011, popular protests erupted in Syria as part of the Arab Spring. The Syrian regime brutally suppressed the protests, which grew into armed opposition and civil war. President Bashar Hafez al-Assad’s Ba’athist government fought against a splintered but militant opposition. The United Nations tracked atrocities committed on both sides, including more than 70,000 killed (CNN).

Assad obtains most of his political support from the authoritarian regimes in China, Russia, and Iran. The Arab League previously supported him, but as the atrocities mounted, now supports the opposition. There is substantial public support for action against the Syrian regime in the United States, France and Britain. The types of action palatable to the voting public in the United States and Britain, weary of wars in Iraq and Afghanistan, do not include intervention. The public in newly-interventionist France does support deploying United Nations troops to Syria. All three countries support economic sanctions, and there is increasing support for supplying opposition groups with military materiel (Council on Foreign Relations). Political leadership in the United States, France and Britain are responding with proxy war proposals consistent with this public opinion.

Expect limited military materiel support to Syrian rebels from the US, Britain and France in the near future. Due to insufficient public support, this will not include deployment of troops, and will only be sufficient to prolong — not win — the war. Over time, limited and therefore ineffectual military support may lead to increasing public support for deployment. If deployment occurs, expect a quick apparent win by the opposition, which turns into a long (5-15 years) and expensive period of nation-building and civil war as in Iraq and Afghanistan. Increased western military expenditures will improve yields in the defense sector, but increase government debt and taxes. Expect lower economic performance overall as defense expenditures aimed at Syria increase.

Opposition groups that will immediately benefit from western intervention in Syria will solicit such intervention in the short term. However, public opinion in Islamic countries find western intervention highly disagreeable, as do China, Russia and Iran. Expect increased global tensions and Islamic terrorism from western intervention in Syria. Expect Syrian opposition groups to quickly spurn their western benefactors as soon as military and other aid ends.

Today, France joined the UK in publicly threatening to rupture a common approach to European Union (EU) foreign policy by sending arms to Syrian rebels (Bloomberg). This, on the heels of the January 11 unilateral French intervention in Northern Mali. Since the May 2012 election of French President François Hollande, France has increased its political independence with respect to the EU. This distresses Germany, which wants closer political union. Without seeing gains in political unity, Germany could decrease its financial support to the European project (Council on Foreign Relations). This augurs poorly for European monetary union, the value of the Euro, and global economic stability.

Lack of German financial support to Europe would increase the probability that Portugal, Italy, Ireland, Greece, or Spain would be forced out of the Euro. Were this to happen without prior agreement from the rest of the eurozone, the cost to the dropout would be catastrophic in terms of trust and with it, access to money markets. The cost to the remaining eurozone countries would be an increase in eurozone per capita money supply and resulting inflation of the Euro. Confidence in the Euro would fall, and the chance of further dropouts would be reflected in the foreign exchange market. Decreasing confidence and loss of value increases incentives for other EU countries to be the next to leave the Euro, with spiraling downward effects on its value. The massive investment in the Euro — and the amount that could be lost given failure — explains why Germany is willing to prop up the currency through stabilization of economically ailing eurozone members. Ailing eurozone countries milk their wealthier neighbors with the threat of Euro collapse.

Euro collapse is not just a European problem. It would have a disastrous effect on the global economy, including major European trading partners such as the United States and China. Thus, all trading partners with Europe have — at least for economic reasons — a stake in the success of a European common foreign policy. This should be considered when jockeying for short-term diplomatic goals such as arming the opposition in Syria.

Increasing European political integration and unity should give the investor increased confidence in the Euro; decreased integration and unity will have downward effects. In part because of understandable historical differences based on the subjective experience of World War II, Germany is profoundly leery of military intervention. France and Britain frequently see intervention as an obligation to stop massacre, genocide, and civil war, especially when such intervention involves ancillary benefits such as removing a rogue or terrorist threat. Increased institutional power to overcome foreign policy differences in Europe would assist common foreign policymaking, and thereby improve market confidence in the Euro. Public pronouncements of Britain and France asserting foreign policy independence from the EU are geared towards influencing Germany and other recalcitrant EU states to take the UK-France-Italy approach on Syria. They show that for the moment at least, short-term foreign policy goals are trumping aspirations of a common EU foreign policy, stability of the Euro, and mitigation of risk to the international economy.

Watch for any hedge by the German government against the Euro, which will precede rapid loss of confidence in the Euro and a decrease in German monetary support to the currency union.

Nepal passed a modest milestone today in its attempts to improve stability . The four top political parties named Supreme Court Chief Justice Khilraj Regmi as head of an interim government. The main goal of Regmi will be to hold elections by June 21 for a new parliament empowered to adopt a constitution (ABC News).

However, we are not overly optimistic. Smaller political parties led violent riots in opposition to Regmi, it is unclear whether elections will actually be held, and even if elections are held, it is unlikely they will lead to a constitution. The last parliament elected for the purpose of deciding on a constitution — in 2008 — was unable to agree on one during its four-year tenure. Nothing fundamental has changed in Nepalese politics to suggest that a constitutional breakthrough will occur in the near future.

Despite the political change that just swept Venezuela — which may indicate a decrease in the promotion of socialism from that country — a more powerful influence for Latin American socialism just arose in Rome. Today Cardinal Jorge Mario Bergoglio became Pope Francis, a name he chose after a Saint known for his asceticism. While socially conservative (e.g., on abortion and gay rights), Cardinal Bergoglio was known to eschew the luxuries of his station for a simple life that included modest quarters, self-cooked meals, and hailing the bus in Buenos Aires. His sermons suggest great sympathy for social justice and the poor, and he comes from Latin America (Washington Post).

Bergoglia’s reputed historical links to 1970s fascism in Argentina, and his political astuteness, means that he wants to prove otherwise. Regardless of his true feelings, it will be hard for him not to play to his massive constituency of poor Catholics in Latin America — the greatest number of Catholics worldwide. Nearly all of Latin America’s poor will be looking to him to address their plight. Regardless of the position he takes on poverty in the future, the lay Catholic ministry in Latin America, and political entrepreneurs farther up the hierarchy, will gain favor among their largely overlapping constituencies for presenting the new Pope as supportive of socialist endeavors. This points to a revival of the liberation theology of the 1980s, and a greater probability of socialist-inspired coups, revolutions, debt defaults, and nationalizations — especially in Latin America.